- How Much Money Can You Give Each Year to Your Child Under IRS Law?
- Can I Be Taxed on Money Gifts From Abroad?
- How Many Gifts Can You Give Anyone at Any Time Without a Gift Tax?
- How Much Tax Do You Pay When You Give Large Sums of Money Away?
- Giving Money to Your Adult Children
- How Much of a Gift Can You Give to Someone to Buy a House?
The Internal Revenue Service requires that you declare on your taxes all gifts that exceed the annual exclusion amount. For example, the annual exclusion amount for the year 2012 is $13,000. Therefore, any qualifying gift you make exceeding that amount in the year 2012 must be declared. The IRS requires this declaration so that your lifetime exclusion amount can be tracked. This amount is $5.12 million per individual as of 2012 and is reduced by the amount you declare for gifts over $13,000 for any given year.
Determine if you need to declare your gift. In addition to gifts that are under the annual exclusion amount, you don't need to declare gifts that are for your spouse, a political organization and educational or medical expenses. In the case of medical or educational expenses, the gift must be made directly to the applicable institution to qualify for the exclusion.Step 2
Calculate the value of the gift. Unless the gift is cash, you need a written estimate from a qualified third party to verify the value of the gift, such as real estate. Add the estimate to your tax returns as proof of the gift's value. Specifically, you need to include the estimate with Form 709 when you file your taxes.Step 3
Determine if you need to split the gift with your spouse, if you are married. If the gift is substantially large and does not qualify for exclusion, you can reduce the effect the value of the gift will have on your lifetime exclusion amount by splitting it with your spouse.Step 4
Obtain IRS Form 709 to declare your gift. This form is available directly from the IRS website, your local post office, library or tax preparation office.Step 5
Complete part one on the first page of the form, including your personal information and whether you are splitting the gift with your spouse. Fill out Schedule A on the form, which requires a list of all gifts you need to declare. Schedule A contains four sections: gifts that are taxable, direct skips, indirect skips and taxable gift reconciliation. Direct skips are gifts to individuals in your family who are considered a generational skip, such as your grandchild. An indirect skip is a little more complicated. The transfer of the gift from the grantor to the recipient has intermediary steps, but the grantor and the recipient can also be related. For example, if the gift is transferred to a trust or to a primary beneficiary (such as a daughter) before being transferred to a grandchild, it is an indirect skip. If you list gifts for any of the skip sections, you must also complete Schedule C. If you made gifts in previous years, you must complete Schedule B.Step 6
Fill out part four of Schedule A, which includes any applicable deductions. Complete part two on page one, which determines the tax computation. Sign and date the form and submit it with your taxes.
- If you don't have enough time to prepare the form by April 15, submit IRS Form 4868 to apply for an extension to file your taxes.
- Internal Revenue Service: Frequently Asked Questions on Gift Taxes
- Internal Revenue Service: IRS Form 709 Instructions
- Internal Revenue Service: IRS Form 709
- Internal Revenue Service: Extension of Time To File Your Tax Return
- Internal Revenue Service: IRS Form 4868
- Internal Revenue Service: Publication 950 (10/2011), Introduction to Estate and Gift Taxes
- Fairmark.com: The Federal Lifetime Gift Tax Exemption Amount of $5,120,000: Use It During Calendar Year 2012 or Lose It
- Forbes.com: You Can Skip A Generation, But Not The Tax Man
- Tax filing gone wrong: this accountant has had enough. image by Alexey Stiop from Fotolia.com